3 Earnings Reports to Watch Next Week

In a more volatile market, these three stocks have the potential for big post-earnings moves next week

There are more than just earnings reports to watch this week. In general, the week looks to be an important one for U.S. stocks.

Treasury yields continue to rise, and now are holding above 2.9%. New Federal Reserve Board Chair Jerome Powell testifies in front of Congress for the first time next Wednesday — and his statements will be closely scrutinized as the market tries to forecast coming rate hikes. With monthly data dribbling in over the course of the week as well, there will be a number of external factors that could move the broad market.

And with earnings season winding down, those external factors likely will get a lot of attention. But that doesn’t mean investors shouldn’t watch those earnings releases closely.

This week’s earnings reports to watch offer news on a potential turnaround, one of the market’s highest-flying growth stocks and a key retail bellwether.

It’s unlikely that any of the three will move the market on their own. But all three will show the health of their respective stocks — and all three could be in for big moves next week.

Earnings Reports to Watch #1: Fitbit (FIT)

Fitbit Inc (NYSE:FIT) heads into its fourth quarter earnings report in desperate need of a win. The stock has pulled back 27% from December highs; it trades just 10% above its all-time low.

It’s not hard to see why. Growth simply has stalled out. While competitors Apple Inc. (NASDAQ:AAPL) and Garmin Ltd. (NASDAQ:GRMN) grow sales, Fitbit is going in reverse. Revenue is expected to decline 24% this year, including a modest 2.7% increase in the fourth quarter.

That’s simply not enough to get investors, or the Street, interested. Indeed, it’s not even enough to make Fitbit profitable. And so Fitbit’s problem remains the same as it was in July, when I argued Fitbit needed a killer product.

If Fitbit can reverse its top-line trajectory, there’s still hope. The company has roughly half of its market cap in cash. It trades at a miniscule 0.5x EV/revenue multiple. And the Street still is modestly behind the stock, with the average target price suggesting 25% upside for FIT stock.

But that reversal will require more innovation — and more growth. Unless Fitbit can show both on Monday, FIT likely will remain dead money at best.

Earnings Reports to Watch #2: Square (SQ)

Square Inc (NYSE:SQ), on the other hand, has shown both growth and innovation. Adjusted revenue (which backs out transaction costs and revenue from Starbucks Corporation (NASDAQ:SBUX), a major customer Square lost last year) is guided to increase 37% in Q4 and roughly 50% for the year.

The concern here is valuation — which will make Tuesday’s fourth-quarter earnings report an interesting test for the payment space as a whole. Recent performance suggests a beat relative to consensus is likely. But those same analysts still have an average target price on SQ stock of just $42 — below the current $44+ share price.

But in a choppier market, and only a couple of weeks after PayPal Holdings Inc (NASDAQ:PYPL) sold off after its Q4 earnings report, will good numbers be enough?

Last year, SQ showed a pattern of modest weakness immediately after earnings — followed by yet another rally. Overall, SQ gained a whopping 154% last year, even with a late-year pullback. To build on the 29% gains seen so far this year, Square is going to need a quarter that shows both big numbers and a catalyst for more growth in 2018 and beyond.

Earnings Reports to Watch #3: Macy’s (M)

Most retailers will start reporting next week — and the Q4 release from Macy’s Inc (NYSE:M) will be very closely watched by that group.

The Street is looking for a good quarter from Macy’s, with EPS of $2.68 against $2.02 the year before, and 1.6% total revenue growth. But much of that expected growth is coming from a real estate sale. Investors still don’t trust the stock, which trades at less than 9x forward earnings.

That’s a multiple that presumes earnings will decline going forward — and the only way for M stock to rise is for Macy’s to prove otherwise. It will have a chance to do so on Tuesday.

The company will detail its plans for — and savings from — corporate tax cuts. More store closures should be coming. And it will be interesting to hear Macy’s management respond to a new, lower tax rate. How much of the tax savings are going back into the business? Will those savings, as some bears argue, simply be ‘competed away’ in the tough mall retailing space?

There was some optimism toward the space coming out of Black Friday, but trading has been choppy so far this year. I argued back in December that mall stocks needed more than just the good Black Friday news to rebound.

We’ll see if on Tuesday Macy’s can give investors a reason to have more confidence in the company – and its sector.

Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.